laissez-faire capitalism = the short road to socialism?

February 28, 2014

One place where I fundamentally disagree with most free-market advocates and laissez-faire economists is the assumption that state intervention is bad/obstructive from the point of view of capitalism proper. “Oh no, inflation! Taxes! Deficits! Devalued currency!” But while state intervention can lead to inflation, higher taxes, budget deficits, and a rapidly expanding, devalued money supply, from the standpoint of labour theory, state intervention, particularly on the part of Washington due to the dollar’s role as global reserve currency, is not only ‘good,’ but needed to keep capitalism from experiencing a falling rate of profit-induced depression.

As the blogger Jehu argues (correctly, in my opinion) via Twitter, “Fascist state deficit spending is drawn from the mass of superfluous capital loaned to it from both within the US and abroad [here fascism = the assumption by the state of the functions of the capitalist class]. Most of the discussion concerning this deficit spending focuses on the ability of the US to fund its deficits, but this is not the problem. So long as the excess capital accumulates within the world market, this capital must find its way into US treasuries. The alternative is that it sits idle and will sooner or later suffer massive nominal devaluation. This excess capital cannot be employed as capital and would, in the absence of Washington’s debts, simply fall out of circulation. In such a case there would be a crisis of overaccumulation along the lines described by Marx in Captal, Volume 3, chapter 15.”

In other words, the state intervenes because it must, not because of any ideological considerations. The latter may influence or shape said intervention, but it’s not the primary cause of it, the contradictions inherent within the capitalist mode of production are. Otherwise, “Side by side with the mass of excess capital, there would also appear a massive population of unemployed workers, who are utterly cut off from productive employment. Assuming the more conservative figures of unproductive labor time provided by Borsch-Supan are correct, this amounts to anywhere from 10% to 30% of the working class. Using the most conservative numbers offered by labor theorists, unemployment could easily reach 50%.”

Socially, this level of unemployment would lead to a situation similar to that of the Great Depression worldwide, with all the social unrest and subsequent labour militancy. But as Jehu argues, this unemployment is only the tip of the ‘cliche iceberg’: “Absent US deficits, overaccumulation would produce a classical depression of the falling rate of profit. Fifty percent of nominal economic activity would evaporate; in turn, competition would erupt among capital to avoid losses; the financial sector would implode; prices would collapse; industrial activity would halt; and the credit system would shut down. The effects would not simply be limited to the US, but would spread throughout the world market; in first place because the depression would severely restrict US imports from the rest of the world market. The largest trading partners of the US would suffer knock-on effects of the collapse of US demands for their output. Moreover, since the crisis in the US forcibly devalues commodity prices there, these commodities will become competitive against former US competitors, adding the deflationary pressures in those countries.”

He concludes that, “With the fall off in US trade deficits with its partners, less capital (dollars reserves of the countries) will flow back into the US seeking some minimum return in the form of interest on fascist state treasuries. Thus if the fascist state did not borrow the excess capital within the world market, the capital would immediately be devalued. The problem is not that Washington accumulates debt by borrowing the excess capital; the real calamity sets in once Washington stop borrowing it.”

The internal logic of capitalism contains within it a number of contradictions that give rise to imbalances and crises which ripple throughout the system, affecting the bottom line of capitalists and the social life of producers alike. And when both the mass of superfluous (i.e., unproductive) capital and labour increase in conjunction with efficiencies in production due to these contradiction, they cause the rate of profit to fall and a shrinkage in the absolute mass of profit created (essentially halting the circulation of capital), compelling capitalists to find ways to overcome this, whether through encouraging debt spending, the opening of new markets, the ‘creative destruction’ of superfluous capital (mostly through state consumption), or creating ways to increase the mass of profit that via evolutions (i.e., innovations) in the means of production and finance that, in turn, set up the conditions for further overaccumulation and crises.

Another reason state intervention (particular in the form of deficit spending) is needed is that a drastic drop in the total hours of labour via unemployment, reduced hours, etc. drastically reduces the time available to capitalists for production of surplus value, which is another material force pushing capital to not only accept and even welcome intervention, but making it a necessity for capitalism to continue to function. Thus intervention not only helps to keep unemployment low and extend the total hours of labour, but it consumes unproductive capital that would otherwise stall the system, which is why Jehu argues that, “The capital that is lent to Washington must be lent to it, because it cannot be employed productively and can only accrue profit in the form of interest payments on fictitious state debts” and “Even as deficit spending increases, austerity and longer hours of labor must be imposed on the working class.”

Despite romantic, liberal notions to the contrary, the state is first and foremost the material expression of capitalist class interests, and from the perspective of labour theory, I think this, plus the material conditions mentioned above, tend to affect and ultimately direct both domestic and foreign economic policies (including the actions of the FED) far more than political ideologies despite how these issues are often framed by the media or politicians. And this, in my opinion, goes a long way towards explaining, among other things, Washington’s growing role as national capitalist a la Friedrich Engels in Socialism: Utopian and Scientific—and here I’m thinking specifically about Jehu’s analysis of Washington’s increasing role as manager of the national capital/surplus absorber on a global scale.

Furthermore, if his analysis is correct, as I believe it is, the greater the reduction of government spending, the greater the potential calamity since “the issue of treasuries is not in the least determined by their ‘value,’ but by the mass of excess capital that must find any available outlet to expand itself. Even if Washington should want to reduce its deficits, it could do this only by bringing down the entire mode of production. The issue of treasuries is not determined by the needs or spending priorities of the fascist state but by the need of the mode of production. As the MMT school is fond of pointing out, the excess surplus value of capital must take the form of state debt on pain of catastrophe. The biggest myth in the debt ceiling debate from last year is the idea Washington has control over its debt and can determine its expansion.”

There’s a silver lining to all of this, however. If we except the arguments of Engels and Jehu, then Washington’s ever-growing role in managing the productive forces of society signals that the productive forces of society are developed enough, and the social nature of production pervasive enough, for the socialized character of the means of production to be given “complete freedom to work itself out,” meaning a possible end to wage labour and the beginning of a new historical epoch. So while free-market advocates and laissez-faire economists continue to argue against the evils of state intervention, what they may ironically be arguing for is the acceleration of capitalism’s demise.